ASSIGNMENT 1(CLO1)

Question 1

Describe two qualitative characteristics of accounting information; reliable and comparable; and
explain how each characteristic is useful in interpreting the financial statements. (10)

Two important qualitative characteristics of accounting information are reliability and comparability.

1. Reliability: Reliability refers to the accuracy and trustworthiness of the accounting

information. Reliable financial statements provide information that is free from bias, error,
and manipulation. The users of financial statements rely on this information to make
informed decisions regarding investments, lending, and other financial matters. Reliable
financial statements inspire confidence and help stakeholders trust the information
presented. It ensures that the financial statements are prepared in a consistent and
transparent manner, following the relevant accounting standards and principles.

In interpreting financial statements, reliability is crucial because it allows users to have faith
in the accuracy of the information. It enables stakeholders to assess the financial position,
performance, and cash flows of an entity. They can rely on the financial statements to make
decisions about investing in the company, extending credit, or assessing its overall financial
health. For example, investors can make informed judgments about the profitability and
stability of a company based on reliable financial statements.

2. Comparability: Comparability refers to the ability to compare financial information across

different entities or over different periods. It ensures that financial statements are prepared
using consistent accounting principles and practices, allowing users to make meaningful
comparisons. Comparability is achieved through adherence to accounting standards and
disclosure requirements.

In interpreting financial statements, comparability is useful because it enables users to assess

the relative performance of different entities or track the performance of a single entity over
time. By comparing financial statements of similar companies, investors can identify trends,
benchmark performance, and evaluate the relative strengths and weaknesses of the entities.
Comparability is particularly important for financial analysis and decision-making, such as
assessing the efficiency of operations, profitability, liquidity, and solvency of a company. It
also helps users in making investment decisions, selecting suppliers or customers, and
analysing industry trends.

Question 2

Explain with your own words, the differences between Merchandising and Manufacturing
businesses. Provide two examples of Malaysian companies for each type of business.
(10)

Merchandising and manufacturing businesses are two distinct types of operations in the business
world. Here are the key differences between the two:

1. Merchandising Businesses: Merchandising businesses primarily engage in buying finished

products from suppliers and reselling them to customers without any substantial alteration
 to the product. They act as intermediaries between producers and consumers. The key
characteristics of merchandising businesses include:

 Inventory: Merchandisers hold inventory of finished goods that they purchase for resale.
They focus on managing inventory levels, pricing, and the marketing of products.

 Sales: Their main revenue comes from the sale of products. They do not engage in the
production or manufacturing process.

 Examples of Malaysian merchandising companies:

a) Parkson Corporation Sdn Bhd: Parkson is a retail company in Malaysia that operates
department stores, offering a wide range of products such as clothing, household items, and
electronics.

b) Popular Holdings Limited: Popular is a bookstore chain in Malaysia that sells books,
stationery, and related merchandise.

2. Manufacturing Businesses: Manufacturing businesses are involved in the production of

goods by transforming raw materials or components into finished products. They typically
have a production facility or factory where they undertake the manufacturing process. The
key characteristics of manufacturing businesses include:

 Production Process: Manufacturers engage in the creation, assembly, or fabrication of

products. They may use various inputs, machinery, and labor to convert raw materials into
finished goods.

 Inventory: Manufacturers hold inventory of raw materials, work-in-progress (partially

completed products), and finished goods.

 Examples of Malaysian manufacturing companies:

a) Top Glove Corporation Bhd: Top Glove is a leading manufacturer of rubber gloves
in Malaysia and globally. They produce a wide range of gloves used in medical,
industrial, and household applications.

b) Proton Holdings Berhad: Proton is a Malaysian automotive manufacturer that

designs, develops, and produces cars. They have a manufacturing plant where they assemble
their vehicles.